Job Cuts, Regulation Push Bankers Toward Hedge Funds

The hedge fund industry is
expected to see a wave of new launches in the next year by
traders who have lost their jobs at investment banks or who have
left in search of better pay.

expected to see a wave of new launches in the next year by
traders who have lost their jobs at investment banks or who have
left in search of better pay.

The start-ups are expected despite the unimpressive
performance of other new ventures and questions about where they
will find new capital to finance them.

New rules banning U.S. banks or those with U.S. subsidiaries
from risky but potentially profitable proprietary trading are
also encouraging some traders to make the move.

Mitt Romney's U.S. presidential election defeat means little
chance of the wider regulatory bill being repealed, as he had
promised.

"If you consider what's going on for (banks) at the moment
from a compensation point of view, plus the increase in
regulation and impediments to expressing risk...then working at
a hedge fund looks like a compelling option at the moment," said

David Barenborg, a portfolio manager at BlackRock
Alternative Advisors.

Among the most prominent names who have tried to launch this
year are JP Morgan's Mike Stewart and Deepak Gulati,
Citi's former head of proprietary trading Sutesh Sharma,
and Nomura's Borut Miklavcic, who gained approval from
Britain's Financial Services Authority for his LindenGrove
Capital this month.

Other traders away from the proprietary businesses, such as
so-called "flow" traders, who engage in market-making
transactions for clients, are also leaving banks.

Antoine Cornut, a former head of flow-credit trading for
Deutsche Bank, is setting up his own credit-focused hedge fund
Camares Capital, two people familiar with the launch said.

Investment banks across the globe have slashed hundreds of
thousands of jobs since a market peak in 2007, as tougher
regulations and weak dealmaking force them to cut costs. UBS
said last month it was winding down its fixed income
business and cut 10,000 jobs.

Banks are also under pressure to cut bonuses and benefits,
reducing the incentive to stay on at a bank with the promise of
a more lucrative job elsewhere.